KEY INVESTMENT HIGHLIGHTS

• FY20 profit of RM402.8m missed our expectations

• Core net income (CNI) for the full year dipped 1.2%yoy to RM402.8m

• 4QFY20 net profit improved by 19.9%yoy to RM85.8m although revenue slid by 2.2%yoy to RM953.7m.

• Strengthening its online presence

• Maintain NEUTRAL with an adjusted TP of RM31.48

FY20 profit of RM402.8m missed our expectations. Fraser & Neave Holdings Bhd’s (F&N) full year earnings made up 89.4% of our estimates. However, it met consensus’ estimates at 97.3%. The difference to our expectation can be attributed to higher than expected operating cost during the period. It announced a DPS of 33.0sen, bringing full year DPS to 60.0sen.

Core net income (CNI) for the full year dipped 1.2%yoy to RM402.8m although revenue slid by 2.2% to RM3,988.5m. We have excluded a one-off gain of RM7.8m from the disposal of the “Teapot” trademark from our CNI. This was due to better cost control and lower expenditure on advertising and promotions (A&P). The slightly weaker results can also be attributed to a weakening Thai baht against the ringgit. The results were due to sustained demand for dairy products and in-home consumption. During the year, products such as Sunkist Pure Juice Drink, F&N ready-to-drink Teh Tarik Ori, 100PLUS Zero, F&N Ice Mountain Sparkling Water and OYOSHI Gold No Sugar Premium Japanese Green Tea were launched. Among the product promotion, F&N The Tarik Ori was launched during a Zoom virtual conference with its consumers in April amid the MCO.

4QFY20 net profit improved by 19.9%yoy to RM85.8m although revenue slid by 2.2%yoy to RM953.7m. This was mainly due to improvement in cost control and lower A&P costs. For F&B Malaysia, revenue contracted marginally to RM495.1m, mainly led by export sales growth of 2.4%. Operating profit improved by 8.3% due to cost savings and lower A&P costs. Recovery is also seen in the Malaysian market during the recovery movement control order (RMCO) period. As for F&B Thailand, topline softened by 3.7%yoy (-1.7% in Thai baht) due to higher stocks carried forward from 3Q, which is cushioned by the growth in the export markets. Operating profit for the Thai segment improved by 20.5%yoy (26.7% in Thai baht) to RM73.0m due to lower A&P spending.

Qoq, CNI fell by 17.4% on the back of revenue that climbed 3.9% mainly due to higher commodity prices and expenditure related to Covid-19. On top of that, Thai baht had weakened during the quarter compared to the preceding quarter. Sales had picked up in 4Q due to the recovery in export markets and economic activities in Malaysia

Source: MIDF Research - 4 Nov 2020